<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-10961
QUIDEL CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2573850
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10165 McKellar Court, San Diego, California 92121
(Address of principal executive offices)
Registrant's telephone number, including area code (619) 552-1100
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 1996 was 21,649,559.
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QUIDEL CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Numbers
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1996 and March 31, 1996................................................3
Condensed Consolidated Statements of Income
Three months ended September 30, 1996 and 1995.......................................4
Condensed Consolidated Statements of Income
Six months ended September 30, 1996 and 1995.........................................5
Condensed Consolidated Statements of Cash Flows
Six months ended September 30, 1996 and 1995.........................................6
Notes to Unaudited Condensed Consolidated
Financial Statements.................................................................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................8 - 11
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings .........................................................................12
ITEM 2. Changes in Securities .....................................................................12
ITEM 3. Defaults upon Senior Securities ...........................................................12
ITEM 4. Submission of Matters to a Vote of Security Holders .......................................12
ITEM 5. Other Information .........................................................................12
ITEM 6. Exhibits and Reports on Form 8-K ..........................................................12
Signatures .............................................................................................13
</TABLE>
2
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
--------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,432,000 $ 2,538,000
Accounts receivable, net 6,353,000 7,602,000
Inventories, at lower of cost (first-in, first-out) or market:
Raw materials 2,306,000 1,899,000
Work in process 1,268,000 1,014,000
Finished goods 891,000 578,000
------------- -------------
4,465,000 3,491,000
Prepaid expenses and other current assets 384,000 555,000
------------- -------------
Total current assets 13,634,000 14,186,000
Property and equipment, net 14,146,000 13,727,000
Intangible assets, net 5,166,000 5,161,000
Other assets 289,000 260,000
------------- -------------
$ 33,235,000 $ 33,334,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,586,000 $ 1,361,000
Accrued payroll and related expenses 776,000 772,000
Note payable to bank under line of credit 185,000 441,000
Deferred contract research revenue 164,000 337,000
Current portion of long-term debt and obligations
under capital leases 377,000 683,000
Other current liabilities 468,000 532,000
------------- -------------
Total current liabilities 3,556,000 4,126,000
Long-term debt and obligations under capital leases 3,296,000 3,490,000
Stockholders' equity:
Common stock 22,000 22,000
Additional paid-in capital 110,318,000 110,054,000
Accumulated deficit (83,957,000) (84,358,000)
------------- -------------
Total stockholders' equity 26,383,000 25,718,000
------------- -------------
$ 33,235,000 $ 33,334,000
============= =============
</TABLE>
See accompanying notes.
3
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Net sales $ 8,902,000 $ 8,129,000
Research contracts, license fees and royalties 766,000 204,000
------------ ------------
Total revenues 9,668,000 8,333,000
Costs and expenses:
Cost of sales 4,242,000 3,760,000
Research and development 1,717,000 1,006,000
Sales and marketing 2,513,000 2,625,000
General and administrative 878,000 844,000
------------ ------------
Total costs and expenses 9,350,000 8,235,000
Operating income 318,000 98,000
Other income and expense:
Interest income 37,000 41,000
Interest expense (116,000) (132,000)
------------ ------------
Income before income taxes 239,000 7,000
Provision for income taxes 31,000 --
------------ ------------
Net income $ 208,000 $ 7,000
============ ============
Net income per share $ .01 $ --
============ ============
Shares used in computing net income per share 22,476,000 22,687,000
============ ============
</TABLE>
See accompanying notes.
4
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QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended September 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Net sales $ 17,949,000 $ 16,610,000
Research contracts, license fees and royalties 1,431,000 270,000
------------ ------------
Total revenues 19,380,000 16,880,000
Costs and expenses:
Cost of sales 8,512,000 7,635,000
Research and development 3,449,000 1,977,000
Sales and marketing 5,120,000 5,382,000
General and administrative 1,694,000 1,676,000
------------ ------------
Total costs and expenses 18,775,000 16,670,000
Operating income 605,000 210,000
Other income and expense:
Interest income 74,000 90,000
Interest expense (247,000) (276,000)
------------ ------------
Income before income taxes 432,000 24,000
Provision for income taxes 31,000 --
------------ ------------
Net income $ 401,000 $ 24,000
============ ============
Net income per share $ .02 $ --
============ ============
Shares used in computing net income per share 22,719,000 22,297,000
============ ============
</TABLE>
5
<PAGE> 6
QUIDEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended September 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 401,000 $ 24,000
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization 1,171,000 976,000
Changes in assets and liabilities:
Accounts receivable 1,249,000 1,209,000
Inventories (974,000) 191,000
Prepaid expenses and other current assets 171,000 (48,000)
Accounts payable 225,000 (674,000)
Accrued payroll and related expenses 4,000 (203,000)
Accrued acquisition expenses -- (629,000)
Deferred contract research revenue (173,000) --
Other current liabilities (64,000) (797,000)
----------- -----------
Net cash flows provided by operating activities 2,010,000 49,000
Cash flows used for investing activities:
Additions to equipment and improvements (1,221,000) (1,502,000)
Increase in other assets (403,000) (76,000)
----------- -----------
Net cash flows used for investing activities (1,624,000) (1,578,000)
Cash flows used for financing activities:
Net proceeds from issuance of common stock 264,000 185,000
Payments on notes payable, long term debt and
obligations under capital leases (756,000) (295,000)
----------- -----------
Net cash flows used for financing activities (492,000) (110,000)
Net decrease in cash and cash equivalents (106,000) (1,639,000)
Cash and cash equivalents at beginning of period 2,538,000 3,878,000
----------- -----------
Cash and cash equivalents at end of period $ 2,432,000 $ 2,239,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 230,000 $ 260,000
=========== ===========
</TABLE>
See accompanying notes.
6
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QUIDEL CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
QUIDEL Corporation ("QUIDEL" or the "Company") discovers, develops, manufactures
and markets diagnostic products for human health care. The unaudited financial
information included herein is condensed and has been prepared in accordance
with generally accepted accounting principles applicable to interim periods;
consequently it does not include all generally accepted accounting disclosures
required for complete annual financial statements. The condensed financial
information contains, in the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary to state fairly the financial
position, results of operations and cash flows. The results of operations for
the three and six months ended September 30, 1996 are not necessarily indicative
of the results to be expected for the full year.
Management suggests that these condensed financial statements be read in
conjunction with the financial statements and notes thereto for the year ended
March 31, 1996, included in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
NET INCOME PER SHARE - Net income per share has been computed using the weighted
average number of common shares and dilutive common stock equivalents
outstanding during each period presented.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NET SALES TRENDS BY MAJOR SALES CHANNELS
<TABLE>
<CAPTION>
INCREASE INCREASE
PERIODS ENDED SEPTEMBER 30, THREE MONTHS (DECREASE) SIX MONTHS (DECREASE)
(IN THOUSANDS) 1996 1995 % 1996 1995 %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic sales:
Professional sales $5,257 $3,933 34% $10,477 $ 7,355 42%
OTC sales 385 592 (35%) 737 1,395 (47%)
Clinical lab sales 376 309 22% 710 627 13%
OEM sales 262 376 (30%) 462 607 (24%)
-------------------------------------------------------------------------
Total domestic sales 6,280 5,210 21% 12,386 9,984 24%
- ------------------------------------------------------------------------------------------------------------------
International sales:
Export sales 1,721 2,037 (16%) 3,847 4,493 (14%)
European subsidiary sales 901 882 2% 1,716 2,133 (20%)
-------------------------------------------------------------------------
Total international sales 2,622 2,919 (10%) 5,563 6,626 (16%)
- ------------------------------------------------------------------------------------------------------------------
Total net sales $8,902 $8,129 10% $17,949 $16,610 8%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Domestic professional sales for the quarter and six months ended September 30,
1996 increased significantly over the corresponding period of the prior year.
The increases are primarily related to sales of the Company's strep throat tests
which were enhanced by the March 1996 receipt of CDC CLIA waived classification
status of the QuickVue(R) In-Line One-Step Strep A Test and the introduction of
CARDS(R) QS(R) and Concise(R) Performance Plus(TM) Strep A tests. Sales of the
Company's one-step pregnancy test and the new one-step H. pylori test for
point-of-care detection of this ulcer-causing bacterium also continued to
improve.
QUIDEL's domestic OTC home testing products are now distributed (effective
January 1996) through Ansell Consumer Products ("Ansell"). Under this agreement,
Ansell purchases these products at a lower price than that obtained by the
Company when these products were sold directly to retail drug stores. The OTC
sales decline shown above is principally related to this reduction in unit sales
prices. This arrangement has allowed the Company to reduce its level of OTC
sales and marketing expense (see the Operating Expense section below).
International export sales declined in the current quarter due principally to
reduced pregnancy product sales in Japan and Italy. For the six month period,
export sales were also effected by reduced allergy product sales in Germany
resulting from a change in the authorized reimbursement level.
Sales of the Company's four European subsidiaries were also reduced in the
current six month period as the Company focused on QUIDEL products only and
eliminated non- QUIDEL branded sales, which amounted to $660,000 in the first
half of the prior year.
8
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REVENUE FROM RESEARCH CONTRACTS, LICENSE FEES AND ROYALTIES
<TABLE>
<CAPTION>
PERIODS ENDED SEPTEMBER 30, THREE MONTHS SIX MONTHS
(IN THOUSANDS) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract research and development $758 $ -- $1,411 $ --
License Fees -- 200 -- 200
Royalty income 8 4 20 70
----------------------------------------
Total $766 $204 $1,431 $270
- --------------------------------------------------------------------------------
</TABLE>
Contract research revenue in the current quarter and six month period is
principally related to the Glaxo influenza program which commenced in March 1996
and is equal to the sum of the program direct research cost (see operating
expenses below) and allocated support service cost.
COST OF SALES AND GROSS PROFIT
<TABLE>
<CAPTION>
PERIODS ENDED SEPTEMBER 30, THREE MONTHS SIX MONTHS
(IN THOUSANDS) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct Cost - material, labor and other
variable cost $3,201 $2,755 $6,371 $5,649
As a percentage of sales 36% 34% 35% 34%
--------------------------------------------------
Direct Margin - contribution per
sales dollar 64% 66% 65% 66%
--------------------------------------------------
Manufacturing overhead cost 1,041 1,005 2,141 1,986
As a percentage of sales 12% 12% 12% 12%
--------------------------------------------------
Total cost of sales 4,242 3,760 8,512 7,635
--------------------------------------------------
Gross profit $4,660 $4,369 $9,437 $8,975
As a percentage of sales 52% 54% 53% 54%
- ------------------------------------------------------------------------------------------------
</TABLE>
Gross profit as a percentage of sales has declined from the comparable prior
year periods due to the shift in the mix of product sales toward higher sales of
strep throat tests which provide a slightly lower direct margin percentage. In
addition, the decline in OTC product sales prices to Ansell, discussed above,
has reduced the gross profit percentage.
9
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OPERATING EXPENSES
<TABLE>
<CAPTION>
PERIODS ENDED SEPTEMBER 30, THREE MONTHS SIX MONTHS
(IN THOUSANDS) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Research and development
Quidel research projects $1,119 $1,006 $ 2,266 $1,977
Contract research-- direct costs 598 -- 1,183 --
---------------------------------------------------
Total research and development 1,717 1,006 3,449 1,977
As a percentage of sales 19% 12% 19% 12%
---------------------------------------------------
Sales and marketing
Domestic professional sales and marketing 1,405 1,150 2,894 2,319
Domestic OTC sales and marketing 200 382 337 877
International sales and marketing 908 1,093 1,889 2,186
---------------------------------------------------
Total sales and marketing 2,513 2,625 5,120 5,382
As a percentage of sales 28% 32% 29% 32%
---------------------------------------------------
General and administrative 878 844 1,694 1,676
As a percentage of sales 10% 11% 9% 10%
- --------------------------------------------------------------------------------------------------------
Total operating expenses $5,108 $4,475 $10,263 $9,035
As a percentage of sales 57% 55% 57% 54%
- --------------------------------------------------------------------------------------------------------
Total operating expenses excluding
contract research $4,510 $4,475 $ 9,080 $9,035
As a percentage of sales 51% 55% 51% 54%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Research and Development. QUIDEL new product research clinical trials cost and
basic research directed towards the next product platform account for the
increase in the Quidel project category shown above. Contract research is
related principally to the direct research costs of the Glaxo influenza
diagnostic product development program and is funded by the contract research
revenue shown above.
Sales and Marketing. Domestic professional sales and marketing expense increased
22% over the prior year's quarter and 25% over the first half of the prior year.
These increases are related in part to new product introduction and promotion
costs which contributed to this quarter's 34% and year to date 42% increase in
U.S. professional sales. Domestic OTC sales and marketing expense has been
reduced to the level considered appropriate to support these sales now that
Ansell has assumed responsibility for the related sales and marketing expenses
under the agreement discussed above.
Net Income. Net income improved to $208,000 ($.01 per share) in the current
quarter from $7,000 in the prior year quarter. This quarter's $291,000 increase
in gross profit, generated from the overall 10% sales increase, and the
combination of relatively flat "net operating expenses" (operating expenses less
related contract
10
<PAGE> 11
research revenue) account for this improvement. Net income for the six months
ended September 30, 1996 increased to $401,000 ($.02 per share) from $24,000 in
the prior year period.
The Company's operating results may continue to fluctuate on a
quarter-to-quarter basis as a result of a number of factors, including the
competitive and economic factors affecting the Company's markets, actions of our
major distributors, adverse actions or delays in product reviews by the United
States Food and Drug Administration, the degree of acceptance that our new
products achieve during the year, and seasonality.
Liquidity and Capital Resources. At September 30, 1996, the Company had cash and
cash equivalents of $2,432,000, compared to $2,538,000 at March 31, 1996. During
the six months ended September 30, 1996, the Company generated $2,010,000 in
cash from operating activities. Cash flow provided from profitable operations,
the reduction of accounts receivable and increases in accounts payable more than
offset an increase in inventory and reduction in deferred contract revenue.
Cash used for investment activities of $1,624,000 related primarily to capital
expenditures for equipment associated with increased production capacity,
equipment supporting scientific research, capitalized patent costs and the
purchase of the remaining interest in our Spanish subsidiary. All subsidiaries
are now wholly owned.
Cash used in financing activities totaled $492,000 and reflects the repayment of
debt and capital lease liabilities offset by the proceeds from the exercise of
employee stock options.
The Company has a domestic accounts receivable-secured bank line of credit in an
amount up to $3,000,000 which provides for interest at the bank's prime rate
plus two percent. The line of credit expires August 5, 1998. As of September 30,
1996, there were no outstanding borrowings under this line of credit. The note
payable to bank shown on the balance sheet is related to Spanish bank debt
secured by receivables of the Company's subsidiary in Spain.
QUIDEL's principal capital requirements are for working capital. These
requirements fluctuate as a result of numerous factors, such as the extent to
which the Company uses or generates cash in operations, progress in research and
development projects, competition and technological developments and the time
and expenditures required to obtain governmental approval of its products. Based
on its current cash position and its current assessment of future operating
results, management believes that its existing sources of liquidity should be
adequate to meet its operating needs during fiscal 1997.
Except for the historical information contained herein, the matters discussed in
this report are by their nature forward-looking. For the reasons stated in this
report or in the Company's Securities and Exchange Commission filings, or for
various unanticipated reasons, actual results may differ materially.
11
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS None
ITEM 2. CHANGES IN SECURITIES None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE None
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K filed in the second quarter of fiscal 1997
None.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUIDEL CORPORATION
-----------------------
(Registrant)
Date: October 23, 1996 /S/ STEVEN C. BURKE
-----------------------
Steven C. Burke
Chief Accounting Officer
Signed both as a duly authorized officer
to sign on behalf of the Registrant and as
Chief Accounting Officer
13
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<S> <C>
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,432
<SECURITIES> 0
<RECEIVABLES> 6,353
<ALLOWANCES> 740
<INVENTORY> 4,465
<CURRENT-ASSETS> 13,634
<PP&E> 21,079
<DEPRECIATION> 6,933
<TOTAL-ASSETS> 33,235
<CURRENT-LIABILITIES> 3,556
<BONDS> 3,296
0
0
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<OTHER-SE> 26,361
<TOTAL-LIABILITY-AND-EQUITY> 33,235
<SALES> 17,949
<TOTAL-REVENUES> 19,380
<CGS> 8,512
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